Policy Analysis In Transmission-constrained electricity Markets
Open Access
- Author:
- Sahraei Ardakani, Mostafa
- Graduate Program:
- Energy and Mineral Engineering
- Degree:
- Doctor of Philosophy
- Document Type:
- Dissertation
- Date of Defense:
- December 15, 2012
- Committee Members:
- Seth Adam Blumsack, Dissertation Advisor/Co-Advisor
Andrew Nathan Kleit, Committee Member
Dr Anastasia Shcherbakova, Committee Member
Terry Lee Friesz, Committee Member - Keywords:
- Policy analysis
Electricity markets
Pennsylvania act 129
Carbon tax
Supply Curve
Transmission network
Topology optimization
FACTS devices - Abstract:
- The existence of transmission constraints introduces complexities in electricity markets, the understanding of which is important in policy applications. One of the major impacts of these constraints is the locational price disparities. This dissertation addresses two policy relevant problems in transmission-constrained electricity markets. First, a model is developed for analysis of supply and demand policies considering the potential distributional impacts caused by the transmission constraints. Second, a potential market design is studied for upgrading the transmission system with Flexible Alternating Current Transmission System (FACTS). Many important electricity policy initiatives, such as imposing emissions taxes or providing incentives for renewable electricity generation, would directly affect the operation of electric power networks. Evaluating such policies often requires models of how the proposed policy will impact system operations. Predictive modeling of electric transmission systems, particularly in the face of transmission constraints, is difficult unless the analyst possesses a detailed network model. Such modeling may require data which is not publicly available. Moreover, policy analysis must often be performed under time constraints, which may prevent the use of complex engineering models. First part of this dissertation develops a method for estimating short-run zonal supply curves in transmission-constrained electricity markets that can be implemented quickly by policy analysts with training in statistical methods (but not necessarily engineering) and with publicly-available data. My model enables analysis of distributional impacts of policies affecting operation of electric power grid. I develop a fuzzy nonlinear statistical model that uses fuel prices and zonal electric loads to determine piecewise supply curves, each segment of which represents the influence of a particular technology type on the zonal electricity price. The domain belonging to different technologies can overlap, which means a mixture of two fuels can be marginal. The magnitude of this overlap is a function of the relative fuel prices. My problem thus requires the simultaneous estimation of the slope of each supply-curve segment, thresholds that define the endpoints of each segment and the level of marginal fuel overlap. I illustrate my methodology by estimating zonal supply curves for the seventeen utility zones in the PJM system, a regional electricity market covering numerous different states. The zonal supply curves are used to study a state-level energy efficiency and conservation legislation in Pennsylvania, within the context of PJM. My focus is on the distributive impacts of this policy – specifically how the policy is likely to impact electricity prices in different areas of Pennsylvania and in the PJM market more generally. Such spatial differences in policy impacts are difficult to model and the transmission system is often ignored in policy studies. For most utilities in Pennsylvania, it would reduce the influence of natural gas on electricity price formation and increase the influence of coal. It would also save 2.1 to 2.8 percent of total energy cost in Pennsylvania in a year similar to 2009. The savings are lower than 0.5 percent in other PJM states and the prices may slightly increase in Washington, DC area. I also analyze the impacts of imposing a $35/ton tax on emissions of carbon dioxide. My results show that the policy would increase the average prices in PJM by 47 to 89 percent under different fuel price scenarios in the short run, and would lead to short-run inter-fuel substitution between coal and natural gas. In the second part of this dissertation I investigate a potential market design for operation of FACTS with the advantages coming from the smart grid technology. Traditionally, electric system operators have dispatched generation to minimize total production costs, assuming a fixed transmission topology within the dispatch horizon. Implementation of smart-grid systems could allow operators to co-optimize transmission topology alongside generator dispatch; the technologies that would enable such co-optimization are still regulated as part of the monopoly transmission system. There are a few proposed mechanisms for compensating transmission owners based on flexible electrical characteristics and availability; and integrating transmission into “complete” real-time electricity markets. I discuss why FACTS devices do not fall in the category of natural monopolies. Then, I propose a sensitivity-based method to calculate the marginal market value of Flexible Alternating Current Transmission Systems (FACTS). Once the marginal value is calculated, different compensation mechanisms can be set up. I study two different such methods for the market-based operation of FACTS, which allows some control over the electrical topology of transmission lines. The first mechanism, compensates the devices based on differences in locational prices (effectively with Financial Transmission Rights), while the second allows FACTS devices to submit supply offers just as generators would, being paid a market-clearing price for additional transfer capability provided to the system. My problem formulation suggests a number of regulatory implications for flexible transmission architecture. First, inclusion of a price signal in the wholesale electricity markets for the FACTS capacity can lead to a more efficient operation of such devices. Second, the additional transfer capability offered by FACTS devices may effectively clear the real-time market in some circumstances (i.e., the additional transfer capability displaces higher-cost generation), suggesting that FACTS devices have the power to set prices. Third, if FACTS devices are compensated based on locational price differentials, the owners of such devices may not have the right incentive to offer the socially optimal amount of transfer capability to the system. The market structure is explained and marginal value for the FACTS capacity is calculated in a two-node and a thirty-bus system. The results show that the outcomes of both payment structures are equivalent when the congestion is large enough.